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Monthly Archives: August 2015

Affordable housing is fundamental to smooth functioning economies, but even the best-performing economies are struggling to meet this need, world over. The rapid urbanization and income growth are pushing a section of the urban household to even forego basic essentials like health care to afford decent housing.

Affordability gap has been defined by Mc Kinsey Global Institute as the difference between the cost of an acceptable standard housing unit (different in each location) and what a household can afford to pay using not more than 30% of their income.

Building of affordable houses can happen mostly through public funding only. The Government an contribute by lowering cost of land, construction, offering finance etc. making housing affordable to 80% of households earning median income.

What are the possible ways of bringing down construction costs? The government can release unused land for affordable housing apart from allowing more FSI on a plot of land. Thirty percent project costs can be reduced by using standardized design, assembling houses using prefabricated components. All this, apart from low interest rates and consolidated buying that can reduce expenses of construction.

Affordable housing presents an opportunity to the construction industry, worldwide, a market of $200 billion to $250 billion revenue annually.

It is only wise to add utilities expenses while calculating cost of housing affordability. So a higher energy cost can turn the affordable rentals to unaffordable. Housing offered in faraway places which has low density makes it necessary for the household to own a vehicle, making the cost of housing a combination of transportation cost as well.

One way to meet the challenges could be to adopt green affordable housing, which would meet all conditions of sustainability, durability, health and safety, and energy and water efficiency.

Some of the options available in India to construct low cost housing are use of concrete hollow bricks, using brick arches instead of concrete lintels, filler slabs for thermal insulation, and ferro cement shells and slabs.

The idea is to set a minimum standard for affordable housing and this can be done by policy makers, for each of their cities.

≈ Comments Off on Land pooling route – for expressway and bypass projects

The Government is planning to return 40% of the land acquired, back to its original owners for commercial development, thus doing away with obstacles in the way of infrastructure development. This may also enable states to enable land pooling for road projects. The country is looking to lay 30 kilometers of roads everyday by March 2016.

Land pooling would help projects that are stuck due to land acquisition issues. Andhra Pradesh has set an example by pooling 34000 acres of land for the construction of its capital Amaravati, by making farmers its stakeholders. The attraction is that these farmers would get back 30% of their developed land back, which will have a higher price tag.
Analysis shows that 43% of the stalled projects face land acquisition problems and land costs account for 45% of the cost of building highways. If the land ordinance lapses and the land acquisition bill 2013 come into force, land acquisition will be a long drawn process causing delays in development.

The government today asked real estate developers to adopt modern construction technologies to boost housing supply. As an initiative the Government has entered into MoUs with premier institutes like IIT and School of Planning and Architecture to use cost effective technologies, that are globally accepted to implement the scheme ‘Housing for All’ by 2022. This will reduce dependence on conventional energy-intensive construction practices conserving the natural resources.

Emerging technologies, materials, and products will play a crucial role apart from the priority given to land, finance and policy/regulation.

Meanwhile, Chennai the CMDA (Chennai Metropolitan Development Authority) might increase the FSI to facilitate the Union Governments ‘push for affordable housing. The city has the lowest FSI compared to elsewhere in the world as well.

The current upper limit for FSI is 2.5 for multi-storied buildings, 2.75 for commercial building and 3.5 for premium construction, set many decades ago. Across cities in the world, FSI range from 7 to 17 where in, a 1000 sq. ft. plot can have a built up area of even 17000 sq. ft., in the latter case. In Chennai, it is just 3500 sq. ft.

An increased FSI would mean more housing units on each given plot. The Chennai chapter of CREDAI has also petitioned for an increase in FSI, especially in areas that are 3-5 kilometers away from the city. The additional FSI and Transferable Development Rights (TDR) and a relaxed density norm can facilitate affordable housing in bigger cities.

Sceptics however are unsure that the increase in FSi will translate to affordable homes as developers may capitalise on this for profits.

Going by the campaign on price correction, developers in the country have launched 7000 units in the last quarter, affordable units mostly in the NCR. Most of these are in the price range of Rs30-50 lakhs.

The dream of owning a house, for many can come true since property price rise across the country has been an annualized 1.7% only, which is a correction in itself. While the advertised prices are higher real estate developers do offer huge discounts to genuine buyers, thus reducing the transaction prices by 10-15%. Secondary market sales and distress sales have also contributed to the decreasing prices.

Not all investors have the capacity to hold on during tough times, ordinary people who bought a second house as an investment are unable to book the kind of profits they expected.

The industry has to go through this dip to come clean from the black money and the benami transactions that has created this situation.

The affordable housing is a USD 11.8 billion opportunity in India across the major cities. Urban affordable housing has been neglected due to the high costs. The scale of operations will be the factor that decides profit margins in the affordable segment. Incentivizing the sector by making land available and providing additional floor space can give a boost to this form of housing.

Rentals surprisingly have not risen much, even when the shift to opting for rental houses is gaining popularity, till the market stabilizes.

Strong macroeconomic fundamentals of India will ensure that the economy is under control and in a better position than other economies. The country has $380 billion forex reserves that will be put into use when required.

The Governor also hinted at lowering interest rates, if the status of lower commodity prices continues, with astute food management by the Government and strong anti-inflation policy stance of the central bank. The oil prices would remain at low levels for a year or two, as per predictions.
The rupee has seen a low level, at 66.49, in the last 2 years, in opening trade on sustained capital outflows. The RBI Governor said that turmoil in currency market has been long-coming and China is only the last step in it.

Rupee has strengthened against yen and euro, and RBI has resources to deal with rupee volatility. Crude prices fell after slipping below $40 barrel for the first time in six years after weak Chinese manufacturing data.

The first half of 2015 has seen lesser launches in Chennai city, due to excess of inventory available and lesser demand. South Chennai however had the highest of inventory available (57.60%) and also had an absorption rate of 40%.

Adyar, Velachery, ECR, Sholinganallur, Perumbakkam and Medavakkam, are sought after residential and commercial spaces due to the good physical, social infrastructure and civic amenities. ECR, Velachery, OMR and Tambaram are attracting buyers as these are good destinations for long term investment.

The four lane stretch of 33.5 km on ECR between Akkarai and Mamallapuram will be completed by March 2016.

The ongoing construction of Phase II of the Outer Ring Road, linking the suburbs, and the proposed peripheral ring road project, are expected to improve the demand and capital values of the projects located in far-away suburbs, which are yet to be developed. Buyers are choosing to invest here because they are looking at the potential of the area after the Corporation limit is extended to Perumbakkam and Pallavaram.

Chennai’s development has always been along the transportation corridors, these are called ribbon developments. The project types vary depending on location, USP, connectivity and land value. About 30-40 per cent of buyers belong to the IT sector, followed by NRIs (25 per cent). Majority of the buyers fall under the middle and upper-middle group, with a monthly income between Rs. 50,000 and Rs. 1,00,000.

≈ Comments Off on RBI Governor asks realty developers to cut down prices

Large Indian Banks have asked RBI to permission to sell loans below base rate, but the RBI Governor was clear about the fact that the larger need was to cut the price of housing to push up demand.

Teaser loans would help create demand, but creating a situation where prices stay high at a level where demand may not pick up may not help. Teaser loans were used in 2008 to revive demand, by lending below the base rate. Though the due diligence that went into those loans were the same as other loans, and the eligibility was the same as regular loans it still was tagged a teaser due to the fact that it offered at 8% interest.

The RBI feels that once there is a sense that prices have stabilized, people will buy RE, though he agrees to the fact that one of the ways could be to reduce interest rates.

Alphawise City Vibrancy Index (ACVI) is a measure of the drivers of urbanization. This index represents the relative growth of urbanization in the select cities of the country. The key drivers include infrastructure, job creation, modern consumer services and the capability to mobilize savings.

Urban consumption growth appears to be showing signs of improvement and given India’s favorable demographics and rising disposable income. Overall ACVI has increased 5 per cent for the six-month period ending March 2015 while consumption index rose 8 per cent, job opportunities index rose 5 per cent and the financial infrastructure index rose 2 per cent in the same period. Bank ATMs have been the key driver of growth as the annual growth in ATMs has been 25 per cent for the top 200 cities.

The fastest growing consumption segments for the top 200 cities include multiplexes, retail apparel and restaurants. Bengaluru, Pune and Chandigarh are the most vibrant cities. Chandigarh and Raipur are top ranked in the consumption index, Bengaluru and Pune lead in job opportunities and Nashik and Varanasi rank at the top in the financial infrastructure index- the report said.

Among the top 200 cities by population, Noida, Gurgaon, Hisar, Bengaluru and Pune are the most vibrant ones. Noida, Gurgaon and Chandigarh rank the highest in the Consumption Index. In terms of job opportunities, Noida, Gurgaon and Bengaluru lead the pack and Belgaum, Faizabad, and Mahbubanagar are the top 3 for financial penetration, the report added.

India’s economy could grow by 7.5-8% in FY16, as economic growth in the second half is expected to show better results.

The first quarter GDP data is scheduled to be released on August 28.

The analysts predict India’s GDP growth to be around 7% from 7.5% predicted earlier due to drier-than-usual weather conditions. It is lower than government’s forecast of 8.1-8.5% and the Reserve Bank of India’s 7.6% for the year.

The lower rainfall has affected farm output hurting rural income and will affect supply. But a deficient monsoon may not affect the GDP value, basically because in India, Kharif crop and rabi crop compensates each other. Experts at IKIA consulting services are positive that the growth rate will continue

Shopping malls have brought in a new culture to the Indian cities, especially to the Tier 2 and Tier 3 cities. While road side vendors are fighting a losing battle with these malls and their occupants who are willing to sell their products at lesser price, all malls are not profitable.

The vacancy rates between successful and unsuccessful malls stand at 10% across major Indian cities. A total of 3.5 – 4.5 million sq. ft. of space will lay vacant across the country – reports say. The success of a mall is calculated basis vacancy level, rental value, appreciation and tenants profile. Quite a few are average performing malls and very few are successful. The reason for failure is identified as poor management.

An intelligent management will look at a right mix of tenants, space optimization and zoning. Studying shopper behavior and taking feedback from shoppers is important. Various brand categories, need to be managed intelligently to monetize areas that will prove beneficial.

Another reason for poor performance was the inability to define mall type, lack of research and selection of wrong partners. Not all developers were experts at mall management, and hence very few malls are today operating near full capacities. The unsuccessful ones get converted to Grade B malls or make way for new asset classes, paving way for the successful ones to improve. Going forward profitable malls may charge a premium for their sustainable value.